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UPDATED with commentary from earnings call. Facebook parent Meta Platforms reported its first quarterly drop in year-to-year revenue, with earnings per share sliding 32%, as worsening economic conditions and increased competition squeezed results.
CEO Mark Zuckerberg said during an earnings call with Wall Street analysts that the company would slow the rate of growth of its head count in the months to come given the backdrop of foreign exchange gyrations, inflation and rising interest rates.
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“We seem to have entered an economic downturn that will have a broad impact on the digital advertising business,” he said. “It’s always hard to predict how deep or how long these cycles will be, but I’d say the situation is worse than it was a quarter ago.” The hiring of a number of new employees by Meta earlier in 2022 as it invests in new initiatives, he continued, means the rate of growth of headcount “should continue to decline over time. This is a period that demands more intensity. I expect us to get more done with fewer resources.”
No exact targets or growth projections have been offered as to staffing as the company continues to evaluate its structure, executives said.
“We’re not putting any markers out yet for 2023,” CFO David Wehner said. “We plan to be more focused on maintaining discipline on head count growth. As we get closer to that and setting a budget, we’ll be giving more specific guidance.”
Revenue totaled $28.8 billion in the quarter ending June 30, down about 1% and slightly below the Street’s expectation. Earnings of $2.46 a share came in well shy of analysts’ $2.61 target, which was already a dollar below the year-ago level of $3.61.
Growth is continuing to slow markedly in the company’s signature social media portfolio, with Facebook daily active users inching up just 3% compared with the year-ago period to reach 1.97 billion.
Shares slid as much as 6% in after-hours trading on the news before regaining most of that ground. They had risen more than 6.5% during the regular trading day to close at $169.58.
Meta said it expects “broader macroeconomic uncertainty” to hurt third-quarter revenue, which it sees landing in the $26 billion to $28.5 billion range. “This outlook reflects a continuation of the weak advertising demand environment we experienced throughout the second quarter,” the company said in its official earnings release.
Along with the financial results, which largely undershot Wall Street analysts’ forecasts, the company said Wehner will take on a new role as the company’s first chief strategy officer, guiding strategy and corporate development. He will be replaced as CFO by Susan Li, currently Meta’s VP of finance. The transition will take effect on November 1.
After rebranding the company from Facebook to Meta last year, the company has indicated long-term plans to focus on the metaverse and virtual worlds and shift away from Instagram, Facebook and WhatsApp, which are facing intensifying competition from TikTok.
In the earnings release, Zuckerberg sought to highlight a couple of bright spots. “It was good to see positive trajectory on our engagement trends this quarter coming from products like Reels and our investments in AI,” he said.
Yet another headache for Meta, however, arrived just before the earnings report when the Federal Trade Commission said it would block the tech giant from acquiring virtual reality firm Within Unlimited, maker of fitness app Supernatural. The regulatory agency said Meta is already a major player in VR and the move would therefore be anti-competitive. The company responded by saying the FTC’s move sends “a chilling message” to any would-be innovators in the VR sector.
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